Risk Management

Risk is inherent to all businesses, regardless of your industry. To prevent those risks from causing harm, you must first know what threats you are facing. So the foundation of any successful risk management program is a thorough risk assessment – which can take many forms depending on what methodology best suits your needs.

Risk assessment is the process of determining what threats confront your organization, the potential severity of each threat, and how to keep potential damage as low as possible. A risk assessment will usually include the following steps:

• Risk and hazard identification
• Determining the likelihood and size of potential losses
• Creation of controls and mitigation measures
• Record, review, and monitor

These basic steps aren’t enough to help a company develop a clear view of its threat landscape; that’s where risk assessment methodologies come in. A methodology is a disciplined approach to working through those basic steps, so your assessment can happen more efficiently and arrive at better results, time and time again.

Keep in mind that you are not limited to one choice of methodology. Some assessments may call for a combination of approaches, or different methods may better suit various departments within your organization.

Risk Assessments vs. Risk Analysis

One step within the assessment process is the risk analysis, in which you weigh the importance and likelihood of each risk before giving the risk a score. We’ll get to risk analysis shortly. For now, just understand that the two terms might seem similar, but each one actually describes different concepts.

Risk Assessment Process

Risk assessment happens in four steps:

1. Risk identification. First, find all the risks that might harm your organization. Cybersecurity risks often bubble to the top in a world connected with technology, but you’d be remiss if you only focused on technology-related risks. Survey employees and other stakeholders to identify a broad variety of risks.
2. Determining potential damage. After identifying hazards and vulnerabilities, consider how they are harmful and the possible outcomes.
3. Risk analysis. After identifying the risks, perform the risk analysis and develop action plans. First, assess the probability and criticality of each risk actually happening. You are not expected to eliminate all risks since this is impossible. You do, however, want to take measures proportionate to the level of risk; analysis helps you understand what that level is.
4. Review the risk assessment. Risk assessments should be reviewed periodically to see whether any circumstances have changed. The assessments should always include all potential hazards and new risks.
   
   

Risk Analysis Process

As noted above, risk analysis is one step within the risk assessment process. The framework for risk analysis can be developed with the aid of potential impact estimates.

1. Quantification of uncertainties. As best you can, pinpoint each risk and measure the likelihood of it happening.
2. Estimation of potential impact. Estimate the impact of various risks. For instance, you may be unable to forecast all the damage from an important system going off-line, but you could model how many employees and the personnel costs squandered per hour as they wait for the system to come back online.
3. Formulate risk management actions. Consider “what-if” scenarios and the potential results. Do the costs match the potential benefits? If you plan to update business processes to reduce risks, check with stakeholders to assure that your ideas are effective and sustainable.
   
   

The Difference Between Risk Assessment and Risk Analysis

The difference between risk assessment and risk analysis is that risk assessment is viewed as the entire process where all potential risks are detected, as we explain in our article on risk assessment versus risk analysis.

Each risk level is defined in the process of risk analysis. (And both risk assessment and risk analysis, by the way, fall within the larger category of risk management.)

Choosing the Right Risk Assessment Methodology for You

While all risk assessment tools seek to achieve similar goals, how they pursue those goals can look very different. The structure and framework of your risk assessment process can be tailored to the unique environment and circumstances that make up your company’s risk landscape.

When choosing a risk assessment methodology, ask yourself what you’re hoping to learn. For example, do you want concrete data, where a quantitative risk assessment would be best? Or do you want a broader, generalized sense of enterprise risks, where a qualitative risk assessment would be better?

Do you want to perform a risk assessment within one specific department or across the entire extended enterprise? Asking such questions can help determine what methodology will suit your needs.

You’ll also want to consider how your industry, location, size, and other factors affect your risk control requirements. Certain compliance and regulatory frameworks may require specific risk assessment techniques, which should factor into your decision-making. Before you conduct risk assessments, make sure you understand the legal requirements that apply to your company.

Types of Risk Assessment Methodologies

Risk assessments can be either of two types: quantitative or qualitative.

Quantitative risk refers to the numerical value of the probability and potential impact of a threat. This type of risk assessment requires data collection and statistical analysis to arrive at those numbers.

Qualitative risk is more subjective, focusing on the characteristics of a threat rather than its numerical value. This type of risk assessment often uses expert opinion to arrive at ratings (usually a low/medium/high scale or something similar) for probability and potential impact.

Here are some typical examples of more specific risk assessments.

HIPAA Security Risk Assessment

A HIPAA security risk assessment evaluates your compliance with the Health Insurance Portability and Accountability Act, which protects personal health information (PHI). A HIPAA risk assessment measures how well your organization protects PHI. The safeguards fall into three categories administrative, physical, and technical.

Assessment of administrative safeguards would include a review of business processes and policies. Physical safeguards would be inspected by verifying building and equipment security. A cyber assessment of technical safeguards confirms system security functionality is up to par and access controls are limited to authorized users.

A HIPAA Security Risk Assessment Tool is available at HealthIT.gov and serves as a helpful template.

Workplace Risk Assessment

A safety professional can conduct risk assessments in your office to investigate potential health and safety risks. These inspectors can survey employees and stakeholders to identify potential hazards, such as ergonomic injuries or air quality concerns. In addition to reducing downtime and sick time, a risk evaluation focusing on human health often raises productivity and morale among workers.

Construction Risk Assessment

An assessment team should do a safety risk assessment and hazard analysis on construction worksites to assure that safety standards set by the Occupational Health & Safety Administration (OSHA) are met. Safety management is a critical component in dangerous environments. A safety professional can help implement corrective measures to reduce the level of risk and ensure compliance with safety standards.

Implement Control Measures With ZenGRC

Determining your company’s threat landscape can be a daunting task. Cybersecurity risks change quickly and frequently, and a single assessment will not be sufficient to protect your company over time. So how can you be sure that your information security measures are accurate and up-to-date?

ZenGRC is an integrated platform that allows you to track risk throughout your company. By creating automated workflows, checklists, and alerts, ZenGRC will enable you to examine threats in real time and develop control measures before they strike.

Schedule a demo today and learn more about how ZenGRC can streamline your risk management process.

“Market risks” are risks specifically related to investments. These risks are defined by the behavior of the market overall, and can be caused by factors unrelated to your line of business. Really, any market fluctuations in any area might potentially affect your company’s investments.

Market risk also refers to risks that are inherent to investments, in the sense that some amount of uncertainty will always be at play. A high level of market risk can be dangerous, but that high risk also allows for a high rate of return from those same markets.

While it is impossible to eliminate market risk entirely, you can manage your investments to minimize loss, making it easier for your company to reach its financial goals.
What Is Market Risk?

Market risk, also known as systematic risk, arises from factors and uncertainties affecting the financial markets (particularly the overall performance of investments) and can result in losses. Changes to exchange rates, interest rates, economic downturns such as recessions, and geopolitical events are some examples of factors that contribute to market risk.

Types of Market Risks

Interest rate risk

This risk is caused by changes in interest rates. Volatility in interest rates can cause the value of fixed-rate investments to decline. For example, a treasury bond you bought in 2020 with a very low interest rate is worth less in 2023, since new bonds now carry higher interest rates. Hence maintaining awareness of interest trends is advisable for all investors.

Country risk

Country risk is defined by the economy of wherever you are making investments and the economic or political stability of that country. This stability can be affected by political unrest, natural disasters, international relations, disease outbreaks, war, and similar large-scale events.

Currency risk

Currency risk depends on foreign exchange rates. If the value of the currency used to make an investment goes down, the value of the investment will also fall. Or if you owe money in a foreign currency, the true cost of paying off the debt could rise or fall depending on how that currency moves in relation to other currencies.

Commodity risk

Commodity risk is caused by staple products that are so key to the economy that any volatility in their cost can affect the entire market. This usually refers to products in the energy or agriculture sectors, such as oil, gas, soybeans, or orange juice.

Liquidity risk

Liquidity risk refers to how easily you can convert an investment into cash. An investment with high liquidity risk will be difficult to sell off (either there are few buyers, or nobody is sure what price to pay for the investment), while an investment with low liquidity risk will be relatively easy to sell for market rate.

Examples of Market Risks

Here are a few examples of market risk:

• You invest in a bond and interest rates rise, leading to a reduction in the bond’s value. (Risks associated with changes in interest rates).
• You invest in a foreign stock and the value of the currency in which it’s denominated falls. If you convert the investment back into your home currency at this time, you’ll lose money. (Risks associated with changes in exchange rates between two currencies).
• You invest in a commodity-based fund, after which the price of the underlying commodity falls. This causes the value of your fund to decrease. (Risks associated with changes in commodity prices like gold, oil, and agricultural products).
• The value of your stock falls when the overall market falls. If you sell it during the downturn, you lose money. (Risks associated with changes in the stock market).
• The overall stock market experiences a downturn when the economy enters a recession, causing you to lose money if you have invested in stocks. (Risks associated with market conditions affecting the overall market like natural disasters and economic conditions).
  
  

What Is the Difference Between Market Risk and Business Risk?

Business risk arises from internal risk factors that are unique to a particular business and can lead to potential losses. These factors may include competition, regulatory changes, supply chain disruptions, or changes in customer behavior and preferences. Since these risks are mostly internal, they can be influenced by factors that are within the control of the business.

Market risk is caused by external factors that affect all businesses operating in the same market. The key difference between market risk and business risk is that the former is common to all participants in the market, while the latter is specific to each individual business due to its internal factors.

How Do You Measure Market Risk?

You can measure market risk using various metrics, but the most preferred method is Value at Risk (VaR), a statistical measure that quantifies potential losses and the probability of these losses occurring for a portfolio or stock. That said, this method isn’t foolproof; it’s based on assumptions that may affect the accuracy of results.

Another way to measure market risk is using the risk metric known as beta. Beta measures the sensitivity of a specific stock or investment to the broader market. The equity risk premium (ERP) is the extra returns you can demand for taking on the risk of investment in the stock market rather than making a risk-free investment (say, in an insured bank savings account).

What Are Some Methods for Managing Market Risk?

Determine your risk tolerance

Before developing a market strategy, first decide how much risk you’re willing to take. Investing can be complex, and beginners may not know how to navigate the market successfully. Some companies use VaR to measure how likely an investment is to result in a loss, but this only helps your investment decisions if you’ve determined in advance what risks you are comfortable making.

Diversify your assets

A simple strategy for managing your risk is to avoid making all of your investments in the same sector. Diversification of your asset classes can assure that a loss in one area will be offset by stability or gains in others. This isn’t a guaranteed defense against risk, as any market shifts can affect your investments; but strategically choosing your investments and derivatives can help protect you from truly devastating loss.

Hedge your investments

Hedging is an investment strategy that minimizes potential loss if a stock value falls. This is done by purchasing an option, which gives you the right to sell your stock at an agreed-upon price if its value begins to dip. You may not see as high of a return on your investment as you would otherwise, but it’s an appealing method for those who do not wish to take on an extreme amount of risk.

Stay informed

Be aware of market changes and how fluctuations might affect your investments. You won’t be able to predict the future with perfect accuracy, but staying up to date on the stock market and its movements can help you know when to buy, sell, and hold.

Wait it out

If the value of your stock dips, don’t panic. Minor changes in the market may have temporary effects that your accounts will be able to weather over time. Before selling, observe the trends the market is exhibiting overall and determine whether you can afford to hold on to a long-term investment.

ZenGRC Helps Businesses Minimize Risks

All businesses must accept some risk to grow, so it’s critical that your business prepare for potential risks – not only from the stock market, but also from cyber threats, compliance issues, and any other factor that could disrupt operations and delay your company’s progress. With so much at stake, it can be difficult to know where to begin; how can you create a centralized database of all of your risk and risk prevention efforts?

ZenGRC is the answer. This integrated software gives you a complete view of your company’s entire risk and regulatory compliance landscape with all the information you need right at your fingertips. By providing a single source of truth for your risk management, ZenGRC creates a centralized framework for your risk management strategy.

Schedule a demo today and learn more about how ZenGRC can be a part of your company’s risk solution.

Every successful risk management program works by identifying, analyzing, prioritizing, and mitigating risks. In most enterprises this process is repeated at regular intervals so that organizations can generate data each time about the threats to business operations, the risk those threats pose, and the steps necessary to reduce risk.

That is an enormous amount of data a company must track. To do so — and to do so smartly — companies can build a risk register. In this article we’ll cover understanding risk registers, their relation to risk management, the benefits of a risk register, and how to build one that supports your risk management needs.

Understanding the Concept of Risk Registers

A risk register, also called a risk log, is a tool businesses use to document and track risks across the organization. Envision a spreadsheet or database document that lists the risks you face, along with a variety of relevant factors for each one.

Building and maintaining a risk register is integral to the risk management process — and like many other elements of risk management, it works best when done continuously. Risk registers can help your business identify, analyze, prioritize, and mitigate risks before they manifest into real challenges for the organization.

The most effective risk registers include all the information you can collect about every threat that could pose a risk to the business. That includes the nature of the risk, the disruption it could cause, and what mitigation measures or incident responses are in place. Ultimately, a risk register should tell an organization everything it needs to know about each risk identified.

While every risk register will vary depending on the organization and the scope of its projects, every risk register template should include several items:

• Risk identification. This could include a name or an identification number to identify the risk. Commonly it has variables such as a date or a subtitle to identify each specific risk, if necessary.
  
• Risk description. Providing a brief description of the risk helps determine why the risk is a potential threat. A risk description should be short, concise, and provide a high-level overview.
  
• Risk category. Each risk is assigned to a larger category such as budgetary risks, external risks, security risks, compliance risks, and so forth. This is done by categorizing and evaluating where the risk derives from and determining remediation.
  
• Risk probability. This involves deciding how likely each risk may occur. Using qualitative measurements such as “not likely,” “likely,” or “very likely” can help categorize risk probability. Other, more quantitative measures such as calculated percentages to determine likelihood can help estimate risk probability.
  
• Risk analysis. Analyzing the potential effect that each risk might have on your business can help support the severity of the risk.
  
• Risk mitigation. Also known as a risk response plan, a risk mitigation plan should include a step-by-step solution intended to reduce or eliminate the risk, a brief description of the anticipated outcome, and how the risk mitigation plan will affect the impact of the risk.
  
• Risk priority. Establish the priority of the risk, typically by combining the probability of the risk and the risk analysis. One way to do this is to document priority using a simple numerical scale, such as 1 (low), 2 (medium), or 3 (high).
  
• Risk owner. Each risk to an organization should have an owner assigned to it, to assure that the risk is mitigated according to plan. Risk ownership should include the person who is assigned to oversee the risk mitigation plan, plus any additional team members as necessary.
  
• Risk status. The status of each risk can let people know whether a risk has been successfully mitigated or not. A risk status can be marked as “open,” “in progress,” or “closed,” for example.

While your risk register should include an owner for each risk you identify, the risk register is itself typically owned by project managers or project stakeholders, to assure that all of your risk information is stored in a single accessible place. Some companies may choose to work with experienced risk management professionals to manage their risk register for them, although many give the task to an internal project manager.

The Relation Between Risk Registers and Risk Management

An organization’s risk register is a document that will guide the entire risk management program and the organization’s overall compliance efforts. Whether or not an organization must keep a risk register will depend on the industry and the relevant regulatory requirements.

The project management frameworks also require an organization to define a risk management plan for the project. Using a risk register is one way to do that, and it can also demonstrate to auditors that you have a plan in place to address each risk that might come along.

In other words, a risk register serves as a blueprint for your risk management program. It assigns roles and responsibilities, as well as specific action items. It captures the state of risk for your business (or a specific project therein) so that everyone knows how to manage risk more efficiently.

Benefits of a Risk Register

Using a risk register brings many benefits; one of the biggest is that it will enable teams to manage the organization’s risks more strategically. A risk register can help your business also focus on the organization’s resources in the areas with the highest risk. It can help decision-makers to justify more resources in security measures that will help prevent future risks from harming the business operations and assets.

Additional benefits include:

1. Supports identifying risk patterns

Keeping up-to-date information in the risk register for each new project will let organizations identify risk patterns and be more prepared to tackle new risks that may arise in the future. Put another way, the register will help team leaders predict the risks that could harm business in the future.

2. Provides a common scale for risk measurement

To create a successful risk register, you’ll need input from experts in all areas of your organization. This means that all relevant parties will need to agree on a common scale for measuring risks.

You could decide to measure risk using a qualitative or quantitative scale; that will depend on what makes the most sense for your business. Implementing a uniform measurement scale across your organization, however, will result in more relevant and understandable information across different areas. This will also give stakeholders more tangible data to prioritize risk response activities.

3. Provides more confidence in decision making

Relying on the data generated by a risk register will give your company leaders and stakeholders more confidence in their decisions. A risk register will allow you to plan for risk responses that are informed by the context of the risk itself. Comparing detailed risk information with enterprise objectives and budgetary guidance will help your company to make better decisions about where to spend, and why.

4. Enforces accountability

A risk register requires project managers to assign a risk owner for each risk. It also requires risk owners to verify whether the risks are being mitigated according to plan. This will require team members to check whether certain policies are up-to-date and whether existing controls are functioning as designed.

Maintaining an up-to-date risk register also enables businesses to produce enterprise-level disclosures for compliance audits, formal reports, or regulatory filings. That, in turn, helps businesses to meet regulatory needs in the event of a compromise to the organization’s risk posture.

A Step-By-Step Guide to Building a Risk Register

To start building your risk register, consider one of the many templates available online. Whatever structure you decide to use, the objective of your risk register will always be the same: to log information about potential risks. Beware of getting caught up in the details! Only choose the fields you feel are necessary to communicate the most information about potential risks to your business or project.

Here are the basic steps to create a risk register:

1. Identify risks to the organization

The methods used to identify risks can vary, but usually one starts with a risk assessment or a risk analysis.
Consult with other managers across the enterprise to hear what they believe the major risks are; perhaps have a brainstorming session to generate material. Leverage everyone’s expertise to identify potential risks in various areas of your organization.

2. Define the risks the enterprise faces

After identifying the potential risks to the business, provide a brief description for each one. A risk description can be limited to only the essentials, but still include enough information for all team members to understand why the risk is included.

This step helps managers to understand how individual risks should be grouped into larger categories. Describing the risk also allows for better decisions on how it should be assigned risk owners. For example, this step will inform the “Risk Description” and “Risk Categorization” fields in your risk register.

3. Estimate the probability and impact of organizational risks

It’s important to estimate how each risk might affect your business so you can develop a strategy to deal with them. Deciding the likelihood of a risk is a difficult process, and how you execute this step will largely depend on the risk management methodologies your organization uses. Whichever method you choose, this step will inform the “Risk Probability” and “Risk Analysis” fields in the risk register.

4. Create a risk response plan

A response plan for each risk identified, described, and analyzed assures that the risk is managed effectively. This step can require a great deal of effort and time from the project team. In the end, the risk response plan should be clear and concise.

It is important to research and perform due diligence on all possible risks. If a risk does occur, the risk owner should be able to go straight into action and follow the risk response plan accordingly. This step will inform the “Risk Mitigation” field in the enterprise risk registry.

5. Prioritize risks based on impact to the organization

Not all risks and threats pose the same amount of risk; this step is meant to help organizations better evaluate the level of risk compared to others. Risks with the highest likelihood and potential for impact in many areas should be given the highest priority for mitigation and action plan.

Each risk priority can be determined by combining the risk probability and risk analysis measurements from the steps above.

6. Assign risk owners for each project

Assign a specific owner to each risk identified. Confirm that the people chosen can mitigate the risk, and that they know the mitigation plan for that risk. This step will inform the “Risk Owner” field in your risk registry.

Creating a risk register using these steps will help you build the foundation for a successful risk management plan. Identifying and establishing a mitigating action to new risks can be challenging, but it’s essential. Perfecting your risk registry to the best of your ability can help minimize and remedy risks to your organization.

Minimize Risks with ZenGRC

One of the most efficient ways to make risk identification and mitigation easier for your business is to employ tools designed to help. ZenGRC is an integrated cybersecurity risk management solution designed to provide actionable insights to gain the visibility you need to stay ahead of threats and communicate the impact of risk on high-priority business initiatives. Turn the unknown into quantifiable and actionable risk insights with built-in expertise that identifies and maps risks, threats, and controls for you, so you can spend less time setting up the application and more time using it.

ZenGRC offers a single, real-time view of risk and business context allows you to communicate to the board and key stakeholders in a way framed around their priorities, keeping your risk posture in sync with the direction your business is moving.

ZenGRC will even notify you automatically of any changes or required actions so that you can be on top of your risk posture like never before. Eliminate time-consuming, manual work and streamline collaboration by automating workflows and integrating with your most critical systems.

Plus, ZenGRC is seamlessly integrated to ensure you can leverage your compliance activities to improve your risk posture. The ZenGRC product suite allows you to see, understand, and take action on your IT and cyber risks.

Schedule a consultation today to learn more about how the ZenGRC product suite can help your organization mitigate cybersecurity risk and stay ahead of threats.

Risk is a fact of life for every enterprise. It refers to the possibility that an unexpected event may cause unexpected results. These results are usually undesirable and often harmful. To prevent such harm, it’s crucial to manage and control risk so that it remains at acceptable levels.

This is where enterprise risk management (ERM) enters the picture.

An organization’s ERM program aims to manage risks and mitigate their potential harm. To achieve this goal, the business can employ several risk strategies, also known as risk responses. Two common responses are risk avoidance and risk reduction. Other strategies are risk acceptance and risk transfer.

How do risk avoidance and risk reduction differ from each other? Which strategy should organizations adopt?

Let’s explore.

What Is Risk?

Risk is the probability that an unexpected situation may arise and affect the organization and its business processes, units, resources, or people. Most organizations face many types of risks. These include:

• Strategic risk: The risk that the organization may not be able to achieve its objectives
• Operational risk: The risk of loss due to disrupted business operations that might be caused by failed or faulty processes, systems, or people
• Financial risk: The possibility that a company may lose money or fail to fulfill its financial obligations, such as servicing debt
• Cybersecurity risk: The risk of a cyberattack or data breach compromising business-critical systems or data
• Compliance risk: The chance that the organization might behave in a way that violates laws, regulations, or contractual obligations
• Environmental risk: Natural disasters or climate change disrupting operations and affecting business continuity

In addition, some organizations face other kinds of risks, such as geopolitical, fraud, health and safety, and reputational risks.

What Is Enterprise Risk Management?

ERM is a holistic and continuous approach to managing risk throughout the organization. It is a disciplined method of identifying risks, preparing the company for future hazards, and enabling the achievement of strategic objectives.

An ERM program should include strategies to manage all the risks applicable to the company. It should assess what kind of future events constitute a risk by considering five key elements:

• Risk event: An event that, if realized, might cause unexpected results
• Risk factors: Events that might trigger the risk event
• Risk probability: The likelihood of the risk event happening
• Risk impact: The potential outcome of the risk event
• Risk timeframe: The time period during which the risk event might occur and result in unexpected outcomes

An effective risk management process allows the organization to consider, understand, and assess the full range of risks it faces. It examines the potential harm of each identified risk. It also determines which risk management strategy is best suited to minimize and mitigate undesirable consequences.

Two such strategies are risk avoidance and risk reduction.

What Is Risk Avoidance?

For robust ERM, risk identification and an assessment of likelihood and impact are only the preliminary steps. It’s also essential to address each specific risk to minimize the possibility of adverse consequences. There are many ways to handle different kinds of risks. One such way is risk avoidance.

Risk avoidance means completely eliminating any hazard that might harm the organization, its assets, or its stakeholders; and removing the chance that the risk might become a reality. This strategy aims to deflect as many threats as possible to avoid their costly consequences.

It is commonly assumed that risk avoidance means ignoring or failing to identify business risks and project risks. This is not true. Risk avoidance is a deliberate tactic. Like any other risk management strategy, it requires a systematic approach; and consists of the following steps:

• Identify risks
• Assess the probability and potential impact of each risk
• Calculate risk exposure by quantifying the potential losses that may result if the risk is realized
• Take steps to eliminate the risk
  
  

Examples of Risk Avoidance

An organization may decide not to make a risky investment. After analyzing the investment risks and rewards, risk managers may deem the project – say, buying a smaller company and integrating its technology into yours – too risky and not worth the potentially high reward. Thus, by choosing not to invest, they can avoid the risk of loss.

Or a company may choose to implement a proven and pre-tested technology instead of adopting a new, untested technology. The newer solution may cost less or have innovative features that could improve the organization’s performance, but could also present a higher risk of breakdowns or data breaches. The company can avoid these risks by going with the older, proven technology.

When to Use the Risk Avoidance Strategy

Risk avoidance can be the best risk management strategy when a risk could cause substantial or irreparable harm to the organization. On the other hand, when a risk isn’t likely to have a significant impact, avoidance may end up being too costly. The organization may miss out on positive opportunities, such as lower expenses or operational improvements.

To assure that the strategy is applied correctly to each risk, a thorough risk analysis and risk assessment are essential. It’s also important to determine exactly how the risk will be avoided and how that strategy could benefit the company.

The avoidance strategy may not be feasible for long-term threats. If avoidance increases costs or causes other problems, the organization should re-evaluate this response and consider different responses that could minimize the potential for loss.

What Is Risk Reduction?

While risk avoidance is about removing a risk completely, risk reduction is about lowering the risk to make its consequences less severe. The main goal is to limit the potential harm that may be caused by a risk.

The terms risk reduction and risk mitigation are frequently used interchangeably, although they are not the same. Risk mitigation refers to reducing the expected loss if a risk event happens. Generally, mitigation implies that the risk event or risky activity is still there, but the organization has created a risk mitigation plan to make it less risky.

Reducing risk is about reducing the expected loss from a risk or reducing the likelihood that the risk may occur. It includes the possibility of avoiding the risk altogether, but doesn’t require total avoidance. For example, you can mitigate the impact of a natural disaster, but you can’t reduce the likelihood of a natural disaster happening.

Examples of Risk Reduction

An organization may implement a quality management system (QMS) to assure that its goods and services meet pre-defined specifications or quality standards. This risk reduction strategy aims to lower the risk that output quality will be poor or undesirable to stakeholders.

Another example is implementing a digital platform such as ZenGRC to track regulatory requirements, implement the required controls to maintain compliance, and reduce the risks of non-compliance.

Other examples of risk reduction include:

• Changing a process to reduce health and safety-related risks
• Changing the organizational culture to reduce the risk of high employee turnover
• Performing due diligence on third parties to assure that the party doesn’t pose excessive security or compliance risks
  
  

When to Use the Risk Reduction Strategy

If a risk cannot be entirely avoided, reduction may be the most suitable option. For example, it’s almost impossible to avoid the risk of a cyberattack entirely. Organizations can, however, reduce the likelihood of a security event by implementing antivirus and anti-malware software, firewalls, endpoint detection and response (EDR), and other security solutions.

Risk Avoidance vs. Risk Reduction

Risk avoidance is the only risk management strategy where the goal is to eliminate all probability of a risk from happening. It is usually adopted when the risk can potentially inflict catastrophic damage or when the costs of risk mitigation are higher than the benefits.

On the other hand, risk reduction requires taking specific actions to minimize the likelihood of the possible risk. It may involve implementing controls, policies, or procedures to reduce the chances of harm and make the risk less severe and more manageable. The risk does now, however, disappear completely; the organization has to find a way to “live” with it.

How Risk Avoidance and Risk Reduction Are Part of a Risk Management Plan

Whether a firm adopts a risk avoidance or risk reduction strategy depends on the type of risk in question and its potential impact on the company’s finances, processes, security, workforce, and customers.

To choose the right strategy, it’s vital to identify the risks that affect (or may affect) the organization. It’s also critical to quantify each risk to assess its potential impact.

In general, the success of both strategies depends on:

• Creating and communicating policies
• Implementing proper procedures
• Leveraging the right technology to support the strategy
• Training employees to assure that they behave in risk-appropriate ways
  
  

Streamline Risk Management with ZenGRC

Enterprise risk management can be overwhelming even for seasoned professionals. Reduce the overwhelm with ZenGRC. This integrated platform will support your risk management, evaluations, monitoring, and automation needs. Leverage it to see where risks are changing to enhance risk control.

With its single source of truth, content library, and automated third-party risk management, ZenRisk is a must-have for your enterprise risk management program. Schedule a demo to learn more.

It might seem strange to refer to a component of your cyber risk management plan as an “appetite” – but defining your organization’s appetite for risk is indeed part of risk management, and an important one.

Put simply, risk appetite is the level of risk your organization will accept in your business proceedings, and what you plan to do about those risks. This includes any risk-taking needed to meet your success metrics, as well as the risk management you have in place to protect against those threats.

A risk appetite statement puts those decisions in writing, tying them to your broader business objectives. It’s a living document, critical to risk management since it helps to establish parameters and priorities for your policies, procedures, and internal controls.

How Do You Write a Risk Appetite Statement?

First, a CISO should never make major risk management decisions alone. You should assemble key stakeholders and senior management from across different departments within your organization to help you evaluate goals. These conversations will guide your continued risk management even after your initial risk appetite statement is drafted.

Once you have your team together, decide on shared terms to keep the document concise and unified. Different groups may have different internal vocabulary for the same business objective, and you’ll want to be sure everyone speaks with a common language for a smooth decision-making process.

You’ll need to prioritize strategic objectives in relation to risk tolerance and success metrics across your organization. You may have already done this if you’ve recently completed your regular cyber risk assessment. You can look at your risk profiles within that assessment to get an idea of how to proceed. Additionally, consider strategic risks that may not have directly been addressed in your prior assessment: what risk tolerance does your company have for losses from failed business decisions?

One way to categorize your operational risks is to assign them different risk profiles. This may come naturally via prioritization, but if you need an example, you can look to the U.S. Agency for International Development’s (USAID) 2018 risk appetite statement.

USAID breaks things down into risk categories including:

• Programmatic
• Fiduciary
• Reputational
• Legal
• Security
• Human capital
• Information technology

USAID then assigns each category an “overall risk appetite,” ranging from high to low, which you can see in greater detail in USAID’s risk appetite statement. Each category has a risk profile and smaller breakdowns by operational risk. Then USAID lists relevant regulators and internal controls for risk management.

Of course, this is only one type of risk appetite statement. Your risk managers should spend time reviewing exemplary statements together. This post contains a few examples to get you started, which you can see below.

Examples of Risk Appetite Statements

USAID has a thorough risk statement that is worth reading as a primer for what an extensive appetite statement can encompass. For example, from the 2018 statement:

“We have a MEDIUM risk appetite with regard to: Implementing long-term strategic focus in our country programs. We will set priorities and implement long-term strategic focus in our country programs based on rigorous analysis and collaboration with key stakeholders to achieve more effective results. We will also continually balance this with our obligation to implement initiatives, directives and/or priorities from Congress and the interagency not foreseen during the strategy development process.”

– USAID

In this example, the agency clearly states the level of risk appetite for a specific instance. You can see in the document itself how the agency breaks down associated risks for each category, including mitigation techniques for those smaller subcategories.

Another example of a risk appetite statement comes from the Office of the Comptroller of the Currency (OCC), a regulator for retail and community banks in the United States:

“The OCC has no appetite for unauthorized access to systems and confidential data, and will maintain strong controls to mitigate external threats against its technology infrastructure. The OCC has a low appetite for losing continuity of business operations stemming from unreliable telecommunications or system availability. Business resiliency planning and execution must be aligned with strategic objectives. The OCC has a moderate appetite for innovative technology solutions to meet user demands in a rapidly changing environment. The agency will exercise appropriate governance and discipline when considering and adopting new technology.”

– OCC

Note in this example how it’s possible to have “no appetite” for a certain type of risk. In this instance, it makes sense that an organization dedicated to ensuring the safety and security of financial institutions doesn’t want to take any chances with information systems and confidential data.

On the other hand, the OCC is willing to take some risks to develop improved systems and to try innovative technology to meet user demand. Its mitigation technique for this moderate appetite is to think through decisions for new programs via their organization’s governance.

ZenGRC and Your Risk Appetite Statement

Risk-taking is a key part of success for many businesses, and is not something to be avoided. That does not mean you have to tolerate an amount of risk beyond your decided acceptable levels.

You can maintain a healthy, regular cybersecurity routine via ZenGRC. You’ll have access to seamless data flows in one enterprise risk management dashboard, allowing you to monitor changes and quickly export data on new potential threats. A tool like ZenGRC makes maintaining a living risk appetite statement that much simpler.

Learn more by requesting a demo today.